Will Comps Decline Hurt Potbelly (PBPB) in Q4 Earnings?

While we expect the company to record an increase in revenues driven by unit growth and sales initiatives, comps are likely to decline, given weak consumer demand coupled with food inflation.

We observe that shares of Potbelly have depreciated 8.5% over the last year against the industry’s gain of 8.5%. A challenging operating environment in the U.S. restaurants space has been affecting the company.

Revenues Likely to Grow Driven by Unit Growth

The Zacks Consensus Estimate for revenues in the to-be-reported quarter is pegged at $112 million, reflecting an increase of 9.8% when compared with the year-ago actual figure. In the third quarter, the company reported revenues of $106 million, up 2% year over year.

We expect new unit growth to contribute significantly to the anticipated top-line surge. The company is focusing on moderating company operated unit growth while accelerating franchised unit growth.

The consensus estimate for the number of franchised units at the end of the fourth quarter stands at 58, reflecting year-over-year growth of 34.9%. The number of company operated units is anticipated to be up 20.7%. The Zacks Consensus Estimate for the same is pegged at 496.

Potbelly has been bearing the brunt of a challenging operating environment in the U.S. restaurants space, which led to lower comps in the first nine months of 2017. In fact, this difficult industry backdrop has persisted owing to weak consumer demand coupled with food inflation. This is anticipated to dent results in the fourth quarter as well.

The consensus estimate for comps decline for the fourth quarter is pegged at 4.4%. Comps had declined 4.8% in the last reported quarter.

Our Model Doesn’t Suggest a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Potbelly’shas a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

Stocks to Consider

Here are a few stocks that investors may consider, as our model shows that they have the right combination of elements to post some earnings beat this quarter:

Hilton HLT has an Earnings ESP of +0.13% and a Zacks Rank #2 (Buy). The company is slated to report its quarterly numbers on Feb 14.

Choice Hotels CHH has an Earnings ESP of +1.84% and a Zacks Rank #1. The company is slated to report its quarterly numbers on Feb 20.

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